13 Tips to Save Money When Buying a New Car

Step by step guide on how to buy a car.

  1. Establish monthly budget. To establish a monthly budget you will need:
    a. Your income
  2. Get your credit score. Use free the services provided online
  3. Research APRs for auto loans online
    a. Go to a few websites from big banks and a few smaller banks and research. You will be able to see the advertised APRs for new cars and used cars. These APRs tend to be for people with great credit and your APR might be higher or lower, but it will give you a general idea of what banks are offering at the moment. If you have great (730+) credit, then they will be pretty accurate.
  4. Use online car payment calculator to calculate what price range you can afford. For the online car payment calculator, you will typically need the price of the car, down payment, tax, APR, length of the loan.
    a. Price of the car: Use the advertised MSRP, it’s a good estimate for now
    b. Down payment: You know this number
    c. Tax: you know this number
    d. APR: you can estimate very well this number because you did the research in step 2.
    e. Length of the loan: it’s up to you to decide. Usually between 36 and 72 months At this point, you have a great (nearly perfect) idea of the price of the car you can afford.
  5. Call several insurance companies and get quotes for the car models that you are considering at this point. Remember that the insurance may vary and it should be part of your monthly car budget.
  6. Apply for auto loans online, or at the bank and get approved for a loan amount that fits your budget. You can apply and get approved at several banks, as far as I know there is no penalty if you get accepted for a loan and never use it because you got a better APR somewhere else. At this point, you can go back to step 4 and get a nearly perfect idea of what car you can actually buy.
  7. Find the exact car, model and trim that fit your budget. The goal here is to figure out what car you want and not let a salesman tell you what you want. Since you have figured out your budget, the pool of cars should be small (less than 15). You test drive some cars, do online research and ask around. Keep in mind that good dealerships will let you test drive without any pressure to buy.
  8. Once you KNOW what car, trim and options you like/can afford. Email all the dealerships in your area that have the car. Let them know exactly what you are looking for and that you have financing already. Make sure you get a response in which they explicitly states the OUT THE DOOR price of the car. Ask them to include ALL fees in the price they are giving you. They will typically give you an exact number plus tag (they can’t tell you this number, but it won’t be more than 300 dollars). Note: when I did this, I emailed all the dealerships in my half of the state. Why? Because I was willing to drive if the price justified the drive and because I wanted more prices to negotiate a lower out the door price.
  9. Since you have emailed several dealerships and received written OUT THE DOOR prices. You can email them back and negotiate a better price, just pick the top three and let them know you have better offer. Continue to negotiate until they tell you that they can’t go any lower. You will notice that the top 3 prices from the top 3 dealers will be within a few hundred dollars of each other and that is how you will know they are giving you the car for the lowest price.
  10. At this point, you know exactly how much your monthly payment will be and the cost of you insurance.
  11. Now you have the out the car, the out the door price and your APR from the bank. All that is left to do is to go to the dealership, make sure they honor the out the door price the quoted via email, and sign some papers. Make sure you go in the morning because you might have to call the bank to get the check, you might have to call the insurance to get coverage and a few other things. The dealer might realize you’re very well prepared and they might try to convince you to use their finance company (This happened to me and I took their finance because it was LOWER than the one I already had)
  12. Make sure the terms of the sale are exactly as you expected in step 10. There should be no surprises and if the dealer backs out from the offer or tries to upsell you something you didn’t want, just walk away and go to the dealership with the second best price.
  13. Congratulations, you have just bought a car with minimal negotiations, minimal human contact and you have the BEST possible price!


Tips on How-To Negotiate With A Live Car Salesman

  1. Determine the car you want, and the car you can afford.
  2. Do figure out financing ahead of time (it’s better to not make this decision at the dealership)
  3. If you have trade-in, try to sell it on your own first. You’ll make more money for it, and it won’t add an extra variable to an already large, potentially complicated, transaction. Just remember to get your car smogged 90 days before sale (CA), and to alert the DMV immediately after selling it (get your liability off of it).
  4. If you have to trade in your car at the dealer, that’s fine, but go to Kelly Blue Book and find the value of your trade in at “fair” value. Read the fine print, your 5yr old car with only a couple polished out scratches is NOT in excellent condition. Be realistic. If you transported pets or are a smoker in your car, then instantly take 10% off the fair value price, or use the “poor” price on KBB. Get over it, would you pay “fair” price for a car someone treated as their house?
  5. Research the prices that others are paying for the car you’re now looking to buy. Admit that the average is usually around $1k off sticker, but it’s ok to push for $2K off, or more, if you’re planning on financing through the dealer (as they’ll make up their money on the interest).
  6. Come up with the realistic number you want to buy the car for. In this scenario, let’s say it’s $20K MSRP, but you are willing to pay $18.5K.
  7. Go do your test drive and sit down with the salesperson. Do not say the words “final offer” at any point in the first 30min. Instead, make a “fair” offer for negotiation purposes. My rule is to always start $2K below your final desired purchase price. So in this case, offer $16.5K.
  8. Begin negotiations using the 50% rule. They won’t take your lowball $16.5k offer, but if you keep talking with them and don’t get all “final offer!” on anyone, they won’t want to lose someone who may actually be serious about buying a car today (and not just sending emails asking for the lowest price). So, using the 50% rule—act like you’re relenting a bit, and offer $1k more (50% of the $2k difference to your final price). $17.5k
  9. They’ll be happy you “bumped” and they’ll go get another “pencil” from management. Their new compromised offer will be something stupid like including an extra 6 months of warranty. Just say thank you, but that price is what you want to discuss, not add ons–because the car is already the way you like it. They’ll eventually drop their price to $19.5K.
  10. Keep this up, for as long as it takes. Just remember to bump each time only 50% of your last bump, and only when they take cuts off their end. So your next bump would be $500 more, and you’re now at $18K.
  11. When they counter, bump $250
  12. When they counter again, bump $125
  13. When they counter again, bump $60
  14. Etc, until it’s literally stupid $10 bumps.
  15. By this point they will be convinced that you’re serious, and that they cannot get anymore money out of you. They’ll shake your hand on $18,450. Done, and under budget. You just successfully negotiated the price of your car without having to be afraid or go over budget. “Negotiation” in this case meant you kept the conversation going, showed sincere interest, and never committed to anything above your previous “bump.”
  16. Go into the finance room, turn down all add-ons. It can all be bought cheaper, and better, 3rd party.
  17. Don’t be surprised that tax, title, and license are going to add 12%. That’s not their fault, and it can’t be finnanced. You factored this into your overall budget, right?

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